Galery

1

Victoria Mindova

A wave of positive reviews has hit Greece after the latest report of the International Monetary Fund on the state of its economy. GRReporter has sought the expert opinion of Angelos Tsakanikas, head of the research department of the Institute for Economic and Industrial Research (ΙΟΒΕ) in Athens, who is analyzing the economic situation of Greece for our readers and has made a forecast of the development in the medium term.

The latest report of the International Monetary Fund shows that Greece's economy has stabilized. Do you agree with this?

If we compare the state of the country today with that of a year ago, we can note that there was much uncertainty connected with the position of Greece, with its economic situation and political stability. It was uncertain whether we would remain in the euro zone and it was not clear whether there was any political will to pursue the reforms.

This year, a very large part of this uncertainty no longer exists. There is no debate on "euro or drachma", the programme to recover the Greek economy has been applied in accordance with the bailout agreement and, apparently, the implementation of the structural reforms has greatly intensified. The financial situation is much better, there are positive signals from the tourism sector and the implementation of the privatization programme has started in practice.

This means that we are in a much better position compared to the same period last year, which allows us to be moderately optimistic or less pessimistic at least about the future of the country.

You are saying that we can be less pessimistic about the future of Greece. Which are the greatest challenges facing the government today?

The biggest problem that needs to be addressed is how to attract fresh funds to the country. For better or worse, the funds that we now have and will have in the next few years are insufficient and we should therefore attract new investments. They will create new industries and new jobs, because right now, unemployment has reached extremely high levels.

That is why reforms that will improve the conditions for doing business in the country should be implemented immediately. We have to cope with bureaucracy, the implementation of business projects and the entire system on which the development of entrepreneurship is dependant. This is the main challenge facing Greece at present. In addition, we should use the state property in the best possible way.

It was believed three years ago that this would bring fifty billion euro into the state coffers. Now, it is not expected that privatization revenues will exceed nine billion euro. What will the immediate profit for Greece from the privatization programme be in your opinion?

Fifty billion euro is not a real value today, but this is not the point. We must not focus on the amount that we can obtain at the beginning (up front). The important thing is that the Greek government has to make a very good deal, which very clearly sets forth the obligations of the investor in the coming years, such as the investment of funds and the development of the privatized business. The positive result comes from the value of the investment to be made in order to expand a privatized company rather than from selling it at the highest possible price. You can sell an asset at a price slightly lower than expected, but in return, the investor can pledge to open new jobs in the country and to develop an ambitious investment plan in the future.

As regards the sale of Hellinikon airport for example, the selling price has been persistently discussed but there is no data on how much money the new owner will put into the development of the site.

What are the most attractive sites for sale that Greece can offer within the privatization programme?

Surely, one of them is the old airport in Hellinikon. The sales of the companies related to the natural gas, namely DEPA and DESFA, are of strategic importance too. The Prime Minister has already planned a visit to China to attract new investments. Generally, the sectors of energy, tourism and infrastructure, which includes the construction of roads, ports and airports, are of key importance for the development of the economy. Projects in these sectors can turn Greece into a central logistics centre in Europe.

It seems that Greece is making more efforts to attract investments from the Arab countries and China. What is happening with the investors from Europe and the United States?

I cannot agree that there is no investor interest from the United States and Europe. Investors and European and American funds, which show a strong interest in the development opportunities in Greece often visit us at the Institute for Economic and Industrial Research (IOBE). We had such visits last year too, when the political and economic situation was much more uncertain. If half of this interest grows into real projects, I think that there will be significant revenues of funds.

I must note in addition that OPAP, for example, was not sold to the Chinese. An investment fund with Greek and European presence has bought 33% of it. Water management companies attract the privatization interest of French funds.

It will take time to implement the privatization programme and for it to begin giving tangible positive results. What can be done to start to solve the problem of unemployment, which has exceeded 27% this year?

Unemployment is indeed one of the biggest problems of Greece. The structural reforms we are talking about will bear fruit in the medium term, but we should immediately tackle unemployment. One way is to revive several large infrastructural projects. I cannot say that building roads is the best model for economic development, but it is a step in this direction.

Every new investment in the country, every production department that is created, every international company that decides to open a branch in Greece creates new jobs. I find it very positive that tourism will report good results this year. This means that a lot of people, mainly from the provinces, will have a job. Meanwhile, the rest of the reforms continue to apply and I expect that they will “soften” the situation by the end of the year.

Businesspeople in Greece very seriously resent the heavy tax burden. What needs to be done in order to reduce the burden of taxation on the real business without breaking the balance in the revenue policy of the government?

The problems of the real business in the country are two - high taxes and lack of liquidity.

I think that from the moment we have a stable primary surplus, we will be able to gradually reduce the tax burden on taxpayers and businesses. The supervisory Troika too is aware of the need to reduce the taxes.

A very important condition for the operation of the real economy remains the improvement of liquidity. Therefore, we need to complete the recapitalization of the banking sector. We are talking about creating innovation and production all the time, but nothing can be done until such innovations obtain the funding for development

The recapitalization is underway. However, the funds from the aid are intended to fill the holes in the balance sheets of the banks, which are due to the haircut of the face value of Greek government bonds. They will not be converted into loans to stimulate economic activity, will they?

Yes, that is right, but after the recapitalization, the Greek banks will have a higher credit rating, which will allow them to obtain funds from the European Central Bank at lower costs. Another important condition for the lending to become normal again is the return of deposits. We do not expect that the lending will expand to the level known before the crisis. Easy lending is one of the reasons that have brought us to the current situation. I think that after the summer, the operation of the banks and the lending to the real economy will normalize.

What are the alternative sources of funding of the commercial banks in Greece in addition to the European Central Bank?

The Greek banks obtain funds from the international markets as well. However, their credit rating was very low for a long time and it was very difficult to borrow money from them. After the increase in share capital and reaching the standards of financial adequacy, the funding from other sources will be easier. The European Central Bank remains a major source of funds for the commercial banks because we are part of the European Monetary System. This does not mean that we cannot obtain funds from other sources too.

Wages in the private sector have decreased by approximately 35% over the past three years. Consumption has also significantly declined. Why have the prices in the country remained unchanged?

This observation is correct. We see only this year that the rate of inflation is zero, which means that for the first time in a long time prices will remain unchanged, i.e. they will not increase. A decline has not yet been observed.

Greece is a small country. In many sectors, the operating enterprises are few and there is no serious competition. Demand has decreased on the one hand but taxes have increased on the other. This is one reason why prices have not declined. The other reason is that a large number of companies went bankrupt in Greece at the beginning of the crisis. There was not a stage of price reduction in order for consumption to increase. So, a significantly lower number of players have remained in the market who have been able to retain their pricing policy for some time despite the negative conditions.

I can mention as an example the developments in the tourism sector. Many hotels on the islands did not open during the summer last year. This resulted in lower competition and thus, the hoteliers who worked during the season kept their prices relatively high. Furthermore, we must not forget that in addition to higher taxes, the cost of energy has also increased, which has further prevented the reduction of prices.

The supervisory Troika of the European Central Bank, the European Commission and the International Monetary Fund will return to Athens in June for the revision of the Greek economy. What should the government be doing during this period?

The main tasks facing the government are currently connected with the restructuring of the public sector. There is no room for new measures such as the reduction of salaries and pensions and increase in taxes. The public sector should be reorganized and its operations should improve. This task is not easy, but it is feasible. Meanwhile, we should have completed the bulk of the process of bank recapitalization and the privatization should be going according to plan.

You are saying that the main task of the government now is to introduce a reform in the public sector. Do you think that there should be dismissals of public workers?

I am not of the opinion that we must begin to dismiss public workers at all costs, nor do I think that we must retain all employees in the public sector regardless of their usefulness. Both statements are extreme and they are not in favour of the improvement of public services. If there is a large number of employees in a department of the public administration, they can be transferred to another department which is short of staff if they meet the necessary requirements. Layoffs should be the option only if the staff cannot be used. At the same time, if other departments (such as a large number tax services) are short of staff, then it is better to appoint new young professionals that are appropriate for the specific position in order for the work to be carried out effectively.

Unfortunately, we do not have an effective public sector, regardless of its size. Service quality should be improved and this should be the focus of the efforts of the government.

I am asking you about the dismissals in the public sector because it should be cut by 150 thousand people by the end of 2015 under the bailout agreement with the supervisory Troika.

This number has already been reached with the early retirement programmes. The supervisors from Europe and the International Monetary Fund have given the green light to even make appointments in the public administration if there is a need for new staff.

The purpose of the public administration reform is not to satisfy the supervisory Troika but to improve the quality and efficiency of the services provided by the public sector.

The ultimate goal of the recovery programme is for the country to return to the financial markets and to secure the funding of its economy by itself. When will this happen?

The position of Greece in the external free markets will change when we achieve a stable budget surplus and our macroeconomics recovers. Slowly and gradually, I expect that we will try again to appear in the free market with a small amount at the end of 2014. We could offer three, five or ten-year government bonds, but it would be to test the waters and see the interest rates that the investors will grant.

At the end of the support programme in 2015, there is a hole in the financing and it is not yet clear how it will be filled. Therefore, it is believed that it would be better if we deal with the fiscal consolidation and structural reforms as soon as possible and try to appear in the foreign markets for lending. The initial form of the programme provides for a very high percentage of the primary budget surplus in 2015, which reaches 4.5%. This is a difficult goal and probably, we will not be able to achieve it. We will need additional funding. It would be better if we could obtain it alone. This year, I estimate that the primary surpluses will be around 1% of GDP and the recession will be a little higher than the initially expected 4.6%.